2014 H1 - Funds

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Singapore Goes Shopping

Singapore’s two state investors, GIC and
Temasek Holdings, dominated sovereign wealth fund activity in
the first six months of 2014. During that time they made 61
direct investments abroad with a total value of almost $14
billion, 60 percent of both the number and total dollar value
of cross-border deals by all sovereign funds.

The Singaporean funds have been the swiftest to identify a
niche without an overflow of capital and to double down on
opportunities. Since 2012 both have sought acquisitions in
which they can benefit from rising discretionary incomes in
emerging markets as the world’s middle class
grows. In the first half of 2014, they continued to invest in
emerging-markets technology companies, ranging from hardware to
software to e-commerce. These 18 investments amounted to $2.8
billion, including Temasek’s participation in a
$100 million capital-raising by Beijing-based online retailer
Vancl.com and GIC’s purchase of $700 million worth
of bonds from Chinese computer manufacturer Lenovo Group, also
headquartered in Beijing.

GIC and Temasek Holdings’ Ten Largest
Investments in Commercial and Consumer Technology, January 1 to
June 30, 2014

Fund

Company

Country

Sector

Value ($ Millions)

1. GIC

Lenovo Group (bonds)

China

computer hardware

$700

2. GIC

Kronos

U.S.

software

375

3. GIC

iParadigms

U.S.

software

300

4. GIC

Cheetah Mobile

China

mobile telephony

286

5. GIC

Tencent Holdings

China

mobile telephony

258

6. Temasek Holdings

Cheetah Mobile

China

mobile telephony

130

7. GIC

Netshoes

Brazil

e-commerce

70

8. Temasek Holdings

AsiaInfo-Linkage

China

software

50

9. Temasek Holdings

Jasper

U.S.

software

50

10. GIC

Linx

Brazil

software

41

Source: Sovereign Wealth Center

But Temasek also bet big on traditional consumers by investing
HK$44 billion ($5.7 billion) in A.S. Watson Group, the
drugstore-to-supermarket retail arm of Hong Kong–based
Hutchison Whampoa, the conglomerate controlled by Hong Kong
billionaire, Li Ka-shing. Temasek acquired a 24.95 percent
equity stake in the company, which also owns British pharmacy
chain Superdrug Stores, and pushed back plans for a listing on
the London Stock Exchange. This was the second-biggest deal by
a sovereign wealth fund since the financial crisis and the
sixth-largest recorded by the Sovereign Wealth Center.

This year also marked the start of a new direction for
Temasek. The state-owned investor has traditionally focused on
Asia, where it has helped Singaporean companies grow. In 2006
and 2007, Temasek broadened its investment outlook. Although it
had invested in private equity funds since 2000, the firm had
little firsthand knowledge of developed markets, and its
experience proved to be an unhappy one. Temasek spent about $15
billion on big stakes in such ill-fated financial firms as
London-based banks Standard Chartered and Barclays, and New
York–based brokerage Merrill Lynch & Co., losing
an estimated $8 billion when the 2008–’09
financial crisis hit.

These losses, combined with a need to help support local
companies during the postcrisis period, prompted Temasek to
largely withdraw from big investments in the U.S. and Europe,
except in sectors like energy-related commodities and
technology, where it hoped to gain diversification and industry
know-how.

But in 2014, Temasek has again turned its attention to the
developed world. It has opened new offices in London and New
York, and deals in its target sectors — health care,
oil and gas, and technology — have followed.

Temasek’s top allocation of the first half of
2014 was to boost its stake in Foster City,
California–based biotechnology powerhouse Gilead
Sciences, which has a stable of treatments for HIV, hepatitis C
and other afflictions, to 1 percent, at an estimated cost of
more than $500 million. Temasek also bought 1 percent of BG
Group, a Reading, England–based oil and gas company,
and 0.74 percent of San Diego–based semiconductor
maker Qualcomm, both for just shy of $400 million apiece.

ADIA and QIA Still Hot on Hotels

Although real estate accounted for a smaller chunk of
sovereign wealth funds’ investments than in
previous years, it continued to be a mainstay for the Abu Dhabi
Investment Authority and the Qatar Investment Authority (QIA).
These state-owned funds made sizable purchases of luxury
hotels, office towers and shopping malls. Their real estate
acquisitions for the first half totaled about $3 billion,
though the price tag for QIA’s largest deal
— 50 percent of a portfolio of five
InterContinental–branded hotels in Europe — was
unknown.

Although QIA’s investment pace has slowed since
the June 2013 transfer of power in Qatar, the fund can still
capture headlines, as it did in the first half of 2014. The
fund made its first high-profile investment of the year in
March: Qatar Holding, its direct-investment arm, led a
consortium of New York–based private equity firm
Certares, funds managed by BlackRock, also based in New York,
and Macquarie Capital of Sydney, to buy a 50 percent stake in
American Express Co.’s global business travel
division. The New York credit card giant continues to own the
other half.

In May, QIA flew in the face of U.S. and European Union
sanctions imposed on Russia following its invasion and
occupation of Crimea, part of Ukraine, when it committed $2
billion to a joint vehicle with the Russian Direct Investment
Fund, the federation’s state-owned private equity
firm. This investment gave Russia powerful evidence that it
could still attract capital despite opposition from the
West.

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